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A company manufactures a single product which passes through two processes the output of process 1 becoming the input to process 2
A company manufactures a single product which passes through two processes the output of process 1 becoming the input to process 2.Normal losses and abnormal losses are defective units having a scrap value and cash is received at the end on the period for all such units. The following information relates to the four week period. Raw material issued to process I was 3,000 units at the cost of Rs. 5/- per unit. There was no opening and closing work-in-progress but opening and closing stock of finished goods were Rs. 20,000/- and Rs. 23,000/- respectively. Process 1 Process 2 Normal loss as a percentage of input 10% 5% Output in units 2,800 2,600 Scrap value per unit Rs. 2 Rs. 5 Additional Components 1,000 780 Direct wages incurred 4,000 6,000 Direct expenses incurred 10,000 14,000 Production O/H as a percentage of wages 75% 125% You are required to present the account for a) Process 1 and 2 b) Finished Goods c) Normal Loss d) Abnormal Loss e) Abnormal Gain f) Profit & Loss Account
Expert Solution
Process 1 Account
| Particulars | Units | Rs. | Particulars | Units | Rs. |
| To Material Introduced @ Rs. 5 per unit | 3,000 | 15,000 | By Normal Loss | 300 | 600 |
| To Additional Components | 1,000 | ||||
| To Direct Wages incurred | 4,000 | ||||
| To Direct expenses incurred | 10,000 | By Process 2 A/c | 2,800 | 33,600 | |
| To Production of O/H | 3,000 | ||||
| To Abnormal Gain | 100 | 1,200 | |||
| 3,100 | 34,200 | 3,100 | 34,200 |
Process 2 account
| Particulars | Units | Rs. | Particulars | Units | Rs. |
| To Process 1 A/c | 2,800 | 33,600 | By Normal Loss | 140 | 700 |
| To Additional Components | 780 | By Abnormal Loss | 60 | 1,380 | |
| To Direct Wages incurred | 6,000 | ||||
| To Direct expenses incurred | 14,000 | By Finished Goods | 2,600 | 59,800 | |
| To Production O/H | 7,500 | ||||
| 2,800 | 61,880 | 2,800 | 61,880 |
Finished Goods Account
| Particular | Rs. | Particular | Rs. |
| To Opening Stock | 20,000 | By Sales | 56,800 |
| To Process 2 (Transferred from Process 2 Account) | 59,800 | By Closing Stock | 23,000 |
| 79,800 | 79,800 |
Normal Loss Account
| Particulars | Units | Rs. | Particular | Units | Rs. |
| To Process 1 | 300 | 600 | By Sale of Waste Units | 340 | 1100 |
| To Process 2 | 140 | 700 | By Abnormal Gain A/c | 100 | 200 |
| 440 | 1,300 | 440 | 1,300 |
Abnormal Loss Account
| Particulars | Units | Rs. | Particulars | Units | Rs. |
| To Process 2 | 60 | 1,380 | By Sale of Waste units: | 60 | 300 |
| By Profit and Loss A/c | 1,080 | ||||
| 60 | 1,380 | 60 | 1,380 |
Abnormal Gain Account
| Particulars | Units | Rs. | Particular | Units | Rs. |
| By Normal Loss A/c | 100 | 200 | By Process 1 Account | 100 | 1,200 |
| By Profit & Loass A/c | 1,000 | ||||
| 100 | 1,200 | 100 | 1,200 |
Profit & Loss Account
(So far as it relates to any of the accounts listed Above)
| Particulars | Rs. | Particulars | Rs. |
| To Abnormal Loss | 1,080 | By Abnormal Gain | 1,000 |
| By Net Loss | 80 |
Working Notes:
1 (i) Per Unit cost of normal production under process 1:
= Normal Cost of Normal output\normal output
=33,000-600\3,000-300
= Rs. 12
(ii) Value of abnormal Gain under process 1
Abnormal Gain units= Normal Loss - Actual Loss
= 300 - 200=100 units
Per units cost of normal production 
Abnormal gain units
= Rs. 12100 units=Rs. 1,200
2(i) Per unit cost of normal proudction under process 2:
= Normal cost of Normal output/normal ouput
=61,880-700/2,800-140
= Rs. 23
(ii) Value of abnormal loss under process 2:
Abnormal Loss units = Normal output - Actual output
= 2660 - 2600 = 60 units
Amounts of Abnormal Loss = Per units cost of normal units Abnormal Loss in units
= 6023 = Rs. 1,380
3. Actual Loss in process 1 (300-100) = 200 units
Processs credited to process 1 = 300 units
Excess proceeds credited = 100 units
Each units realised Rs. 2
Total amount to be debited to abnormal gain account = Rs. 200
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